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The complexity of wealth and happiness

As reported in the Wall Street Journal (Curran, 2013), Australia has been ranked the happiest industrialized country in the world for the third year in a row, according to the Better Life Index of the Organization for Economic Cooperation and Development (OECD). That puts it ahead of Sweden, Canada, Norway, and Switzerland – and in sixth place – the United States. The ranking includes evaluations of housing, incomes, jobs, community, education, environment, civic engagement, health, life satisfaction, safety, and work-life balance.

The WSJ report attributes the overall ranking to Australia’s economy, including the fact that it has not had an economic recession in 21 years. That is despite the fact that average household wealth in Australia (US$32,178) is quite a bit less than the OECD average (US$40,516) and well below that of the US ($115,918). Australians also report having less work-life balance than average, and less leisure time. On balance, though, 85% report being in good health, and their life satisfaction ranking was 7.2 out of 10. (Interestingly, the US had the highest self-report health ranking, at 90, and a life satisfaction score of 7.0.)

The connections between wealth and happiness appear, to many people, to be straightforward – well, sort of. Everyone knows that money can’t buy happiness, but virtually no one wants to be poor. The status of the economy, though, has great impacts on our lives, in many ways. Economic arguments have driven much of the political agendas at the federal level in the US for decades; notably since the quotable phrase, “it’s the economy, stupid” was coined during Bill Clinton’s first campaign in 1992. Recently, it has been arguments about unemployment and which political party’s policies would best create jobs.

Economics and politics are connected around the world, as are the complexities those connections cause. A notable issue has been growing income disparity (the gap between the wealthy and everyone else.) As explained by Muller (2013):

Inequality is indeed increasing almost everywhere in the postindustrial capitalist world. But despite what many on the left think, this is not the result of politics, nor is politics likely to reverse it, for the problem is more deeply rooted and intractable than generally recognized. Inequality is an inevitable product of capitalist activity, and expanding equality of opportunity only increases it -- because some individuals and communities are simply better able than others to exploit the opportunities for development and advancement that capitalism affords. Despite what many on the right think, however, this is a problem for everybody, not just those who are doing poorly or those who are ideologically committed to egalitarianism -- because if left unaddressed, rising inequality and economic insecurity can erode social order and generate a populist backlash against the capitalist system at large (par. 2)

One fallacy in traditional political thinking has been that jobs and rising incomes created satisfaction. (Another fallacy is that politicians had much to do with creating jobs, but that’s another story…) A notable contrast to the OECD Better Life Index is captured in the World Happiness Report (2012), edited by John Helliwell, Richard Layard and Jeffrey Sachs. A key finding explains the problems in the US:

The world’s economic superpower, the United States, has achieved striking economic and technological progress over the past half century without gains in the self-reported happiness of the citizenry. Instead, uncertainties and anxieties are high, social and economic inequalities have widened considerably, social trust is in decline, and confidence in government is at an all-time low. Perhaps for these reasons, life satisfaction has remained nearly constant during decades of rising Gross National Product (GNP) per capita (p. 3).

The problem is not that economics and satisfaction are unrelated; it is that the relationship is just not simple and causal. As they further explain:

It is no accident that the happiest countries in the world tend to be high-income countries that also have a high degree of social equality, trust, and quality of governance. In recent years, Denmark has been topping the list. And it’s no accident that the U.S. has experienced no rise of life satisfaction for half a century, a period in which inequality has soared, social trust has declined, and the public has lost faith in its government (p. 7).

The report goes into great detail describing the difficulties and nuances of measuring happiness as a variable, and compares results from three large, ongoing studies: the Gallup World Poll, the European Social Survey, and the World Values Survey. There are distinctions, for instance, between affective happiness and evaluative happiness:

Affective happiness captures the day-to-day joys of friendship, time with family, and sex, or the downsides of long work commutes and sessions with one’s boss. Evaluative happiness measures very different dimensions of life, those that lead to overall satisfaction or frustration with one’s place in society. Higher income, better health of mind and body, and a high degree of trust in one’s community (“social capital”) all contribute to high life satisfaction; poverty, ill health, and deep divisions in the community all contribute to low life satisfaction (p. 7).

Happiness is sometimes experienced immediately, or can be recalled in memory – the affective kind. An evaluation of happiness, though, is much different, and is what people report when asked about satisfaction with their lives, more generally. Measuring them is not one and the same thing.

The relationship between economics and happiness also gets more complicated. As noted in the World Happiness Report:

In 1974 Richard Easterlin wrote a seminal article on what has become known as the Easterlin paradox. He presented evidence of two apparently contradictory phenomena.

“Fact 1” At a point in time within any society, richer people are on average happier than poorer people (a cross-sectional “fact”).

“Fact 2” Over time within many societies, the population does not on average become happier when the country’s income rises (a time-series “fact”).

To reconcile Facts No 1 and 2 Easterlin proposed the relative income hypothesis. People are comparing themselves with other people: it is relative income rather than absolute income that matters. Thus at any particular point in time richer people would compare favorably with poorer people (explaining “Fact No 1”). But over time, the aggregate of relative income in the population remains constant (thus explaining “Fact No 2”) (p. 60)

If you live in poverty and your income rises so that you begin having predictable supplies of food, shelter, clothing, and so on, income is a pretty direct factor. If you have at least a basic standard of living, the rest becomes relative. How are you doing in relation to other people, against whom you compare yourself?

The major contrast in the World Happiness Report focuses on an alternative measure altogether. The Gross National Happiness (GNH) Index was developed in Bhutan. While it was officially adopted in 2008, its roots go back much further. As described in the report:

The 1729 legal code, which dates from the unification of Bhutan, declared that “if the Government cannot create happiness (dekid) for its people, there is no purpose for the Government to exist” (Ura 2010). In 1972, the Fourth King declared Gross National Happiness to be more important than Gross National Product (GNP), and from this time onward, the country oriented its national policy and development plans towards Gross National Happiness (or GNH) (p. 111)

The GNH Index covers nine domains: psychological wellbeing, time use, community vitality, cultural diversity, ecological resilience, living standard, health, education, good governance. These are measured through 33 cluster indicators, which include 124 variables in total. (A graphic in the World Happiness Report , 2012, displays the clusters and indicators on page 115.)

More than just an alternative form of data-gathering, the GNH represents a different way of thinking about well-being and its connection with society.

As the first elected Prime Minister of Bhutan under the new Constitution of Bhutan adopted in 2008 put it:

“We have now clearly distinguished the ‘happiness’ … in GNH from the fleeting, pleasurable ‘feel good’ moods so often associated with that term. We know that true abiding happiness cannot exist while others suffer, and comes only from serving others, living in harmony with nature, and realizing our innate wisdom and the true and brilliant nature of our own minds” (p. 112)